“I think the steady hand of the Minister of Finance has been incredibly good during the last two years. Broadly speaking the government has been very well intentioned in its desire to make a difference for its country and it should be applauded for its general thrusts.”

How would you assess Cyprus’ macroeconomic outlook and the progress made since the crisis?

I think the steady hand of the Minister of Finance has been incredibly good during the last two years. Broadly speaking the government has been very well intentioned in its desire to make a difference for its country and it should be applauded for its general thrusts. However, we have an election year in 2016 in Cyprus, which is why I believe that Cyprus needs to get to debate right now. People think the crisis is over – this crisis is not over. We remain at war with economic circumstance, we remain at war with historic practices that need to be changed, and we remain at war with the rest of world for investment dollars from foreign investment. We need to be having the right debate going into the election year, to have an understanding that Cyprus still has work to do, and not allowing parochial politics to effectively get in the way of a good discussion about the future of the nation.

 

Non-performing loans (NPLs) remain extremely high across Cyprus’ financial sector. When can a reduction be expected, and what can be done to accelerate the process?

I think what I will say is it remains the number one priority for the banking system and our bank. It is not enough to say “reduce them”. You have to disaggregate it into campaigns around individual segments, you have to ensure that we force better changes in the law, we have to make sure that the law is capable of allowing securitisation techniques, that we can do NPL trades, that we modernise the law. I think we have made significant progress towards having a modern law, but we have more to do.

 

Could a bad bank and securitisation of loans still provide a potential solution to the NPL issue?

We need to remember the context. When discussions regarding the bail in took place in 2013, the government was deemed at the time not to be able to afford to separate the bad assets from the good assets because its debt to GDP percentages were regarded as unsustainably high. If you look at the original programme, it was suggested that Cyprus would have up to 130% debt to GPD in its program, which meant that if you added the banking system on top of that, you would have killed it. As it happens, Cyprus is about 107% of GDP so it is possible that a bad bank, good bank solution at the time of the crisis could have been put in place, could have been sustainable, and could have contributed to a faster recovery in the economy.

 

In which sectors do you see the strongest growth prospects?

Looking at tourism, one sector where over 20% of the national GDP is coming from, that industry has substantial multiplier effects on the economy. That would seem like an obvious target for growth. I would say however that the industry has realised it cannot rest on its laurels. A strategic review is in progress, but beyond that my understanding is the hotel base needs to be refreshed, there needs to be a general improvement and increase in the capability of the product, investment in the casino but do it as a proper, programmatic effort to double the number of tourists, to double the GDP contribution. Aim high, set your ambition.

 

What is your assesement of both the government’s reform agenda and its implementation?

In my time in Cyprus I have found that generally everyone knows what to do, but the silence collectively can be deafening. Cyprus needs to continue being brave, we need to be pushing hard in terms of the reform agenda, in short, not wasting the crisis. More modernisation should be on the agenda, stronger legislation and a bravery to build wealth through opening up the ways people can compete, as opposed to protecting the past. This is my mantra as I walk from the island. You now need to build the wealth of the nation through being much more modern, and I think that this is why I come back to the phrase about austerity, it is a platform from which you build prosperity, it is not an answer in itself.

 

What further reforms could be beneficial?

Cyprus competes for global capital, it does not just compete for people’s minds and emotions and you have to remember that if I am sitting in London, and I am looking at the periphery of Europe, I have just begun to realise that Cyprus is not Greece. Now, I have to assess it as a country in its own right against Italy and Spain, Ireland and Luxembourg and France and Germany, and I can put my money wherever I think the return will be good. Cyprus is capable of creating good and safe returns but it has to promote itself in that way.

Labour laws in Cyprus are still very backward. While I respect the right of employees to organise, but with almost 100% union membership in some sectors, with what I can only describe as a paternalistic approach to management over a period of time, we have ended up with irrational pay scales, promotion systems and working practices. All of that has to change as the world digitises, as we head for a more modern banking system, and if you want to sell Cyprus as a gateway to Europe, you need to sell it as a modern gateway to Europe.